After a dramatic selloff in banking equities in the United States, markets in Europe and Asia fell on Friday as a major tech lender announced it had to sell shares to close a financial gap.
SVB Financial Group had to raise cash after selling a portion of its portfolio of US Treasuries at a loss to compensate a sharp fall in customer deposits. SVB Financial Group partners with roughly half of all venture-backed tech and healthcare startups in the US.
After falling 49% in premarket trading, SVB shares were no longer available for trade on the Nasdaq exchange at 8:35 a.m. ET on Friday. On Thursday, the company’s stock fell 60%.
The SVB situation serves as a reminder that many institutions are sitting on sizable unrealized losses on their fixed-income holdings, according to Russ Mould, investment director at UK broker AJ Bell. “Lots of banks hold large portfolios of bonds, and rising interest rates make these less valuable,” he said.
Early trading saw a 0.9% decline in the benchmark Stoxx Europe 600 index for Europe and a 1.4% decline in the bank-focused FTSE 100 index for London.
The 42 major European banks being tracked by the Stoxx Europe 600 Banks index, including those in the United Kingdom, had a more than 4% decline on Friday morning before marginally rebounding.
Stock at the world’s largest bank, HSBC, fell 4.5% on Friday. Shares of Barclays fell by 3.6%, those of Deutsche Bank by 6.8%, and those of Italy’s Unicredit by 4%.
Asia saw losses led by Hong Kong’s Hang Seng, which plummeted 3%, while Shanghai in China and the Kospi in Korea sank 1.4% and 1%, respectively.
Because China failed to make any significant announcements regarding economic stimulus during its National People’s Congress, Asian markets have also been under pressure this week.
Japan’s Nikkei index, however, finished Friday down 1.7% as a result of the central bank’s decision to maintain the nation’s record-low interest rates.
The losses follow a Thursday that saw the biggest drops in US bank stock prices in almost three years. The largest loss in over three years was experienced by the KBW Bank Index, which monitors 24 of the top US banks.
On Thursday, the Dow lost 543 points, or 1.7%, to close lower. The Nasdaq Composite decreased by 2.1% and the S&P 500 dropped by 1.9%.
The selloff is a significant reversal for the global banking industry, which had, up until this past Thursday, benefited from skyrocketing stock prices since last fall.
On the one hand, banks have benefited from high interest rates, which have allowed them to make larger profits on loans to individuals and businesses and as savers put more of their money into savings accounts.
On the other hand, several sizable banks are sitting on losses as borrowing costs have increased and bond values have decreased. These banks had purchased pricey Treasuries and other bonds while interest rates were very low.
If cash-hungry startups remove their accounts, banks with a high exposure to the technology sector, like SVB, are particularly at danger.
